Feature Article: South Africa’s challenge: to boldly, courageously and rigorously review current policies

South Africa’s political miracle has not translated into an economic miracle. This is a thorn that digs relentlessly into the side of government. It is a pervasive perception that fuels the many spontaneous demonstrations that are occurring especially within metropolitan areas and reverberate with ever louder demands for free houses, jobs, and better, more efficient service delivery, and, too often, result in fatalities and destruction of property. Sadly, our current situation echoes what occurred in France in 1794, when Maximilien de Robespierre, one of the foremost architects of the French Revolution, before submitting himself to the blade of the guillotine, turned to the angry crowd and uttered the words, “I gave you freedom, now you want bread as well.”

Political freedom, while a virtue in itself that all people aspire to, does not necessarily result in socio-economic wellbeing. The freedom that correlates with socio-economic progress and prosperity for the greatest number of people is economic freedom.

When people are allowed their economic freedom while being denied political freedom, in other words disenfranchised, they are more tolerant of their state of affairs. The ultimate collapse of South Africa’s ignominious apartheid system was predictable precisely because it had effectively and efficiently denied black people economic freedom. Had black people been oppressed only politically, but allowed to exercise economic freedom in all its aspects, it can be plausibly hypothesised that they would have endured political apartheid for much longer.

If blacks had been allowed to own property privately and exercise their concomitant rights; had they been allowed to exercise personal choice and voluntary exchange and thus legally enabled to enter into economic transactions with whomever they pleased so long as it did not entail force or fraud in the process; had these rights been provided for constitutionally, regardless of race, or had they been protected in terms of common law, conceivably it would have been difficult to prosecute the struggle against apartheid.

The Chinese in Hong Kong, when under colonial British political administration, never waged a political offensive against the rulers. They enjoyed the highest levels of economic freedom for decades. The Economic Freedom of the World and Index of Economic Freedom studies published annually by the Fraser Institute and Heritage Foundation respectively empirically attest to this.

It makes sense, therefore, that South Africa’s woes be addressed in the economic arena. This country has an unemployment rate of over 36% when one includes those who have given up looking for work and many economists insist that this figure is still an understatement. In 2012, South Africa lost 24% in FDI inflows according to the 2013 World Investment Report published by the United Nations Conference on Trade and Development and the economy plodded along at a sluggish average annual growth rate of just 1.89% between 2009 and 2012.

In an economy that grows at 8% per year, incomes double in nine years. Growth of 10% results in incomes doubling in just over seven years. Compare this to government’s National Development Plan which predicates an economic growth rate of 5% at which rate incomes will double every fourteen years. So, even our aspirations in terms of addressing the country’s dire socioeconomic circumstances are not overly ambitious, the NDP is setting the bar too low. Our situation cries out for bold, courageous and rigorous review of existing policies to expunge those that impede the spirit of enterprise, lower the unnecessary legislative barriers to entry across all industries, and make sure that the policies in place reward rather than punish private enterprise.

The point of departure in this exercise is threefold. Firstly, to merely recognise that it is the private sector that is the engine of wealth and job-creation. Secondly, that the government, when considering policy to advance the interests of the country as a whole, must not pander to vested interests, but look at the big picture. And thirdly, and most saliently, that South Africa needs to position itself as a competitively attractive investment destination in the global market. This requires the actual implementation of the policies I’ve mentioned above instead of the glib rhetoric by politicians when they talk about “reducing the cost of doing business” and then do the exact opposite.

With this goal in mind, all of these measures can be implemented at the stroke of a pen. Do away with financial exchange controls; relax the labour laws; make establishing a business easier; withdraw subsidies for state enterprises. South African Airways and Eskom have been haemorrhaging the economy for decades. Open them up to private ownership. Electricity is the lifeblood of the economy. To cope with any growth, even the grossly unambitious 5% predicated by the NDP, we need to open up electricity generation to private enterprises that can compete amongst each other and an unsubsidised Eskom. The rule that reigns supreme in the private sector needs to be as ruthlessly applied to government: sink or swim. This rule should be the order of the day.

A fundamental challenge that confronts this country is how to attain an economic growth rate of 10%.

One policy among the many crucial to attracting foreign direct investment and stimulating domestic investment is that a uniform and consistently strong intellectual property (IP) policy regime should be in place. Businesses that are IP-oriented obviously have to invest immense capital in research and development and it takes a long time before they recoup their costs and start realising a return on their investments. A worrying sign is that, especially within the BRICS trading bloc, South Africa seems to be inclined to emulate the policies of China and India which tend to undermine intellectual property rights. 

Policymakers should always be aware that the market is very sensitive to any policy or statement that threatens investment. Thus, even reckless talk of targeting some sectors of the economy for nationalisation, or expropriating property, sends signals throughout the world that this country is not investor-friendly.

We need to keep in mind these words of Winston Churchill: “Among our socialist opponents there is great confusion. Some of them regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is…the strong and willing horse that pulls the whole cart along”.

Author Temba A Nolutshungu is a Director of the Free Market Foundation. This article is based on an address delivered on 20 February 2014 to the Public Affairs Forum of the American Chamber of Commerce. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

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